Turtle trading is a specific type of strategy that follows trends. It uses a system of trades based on breakouts that begin with two figures. The first figure is a long-term price used for an entry trade. The exit breakout, which is usually for a shorter time period, is also set at the time of entry.
What makes the turtle trading system unique is that it is built on the assumption that anyone can successfully trade using the guidelines set forth. The principle is that no matter what type of experience or knowledge the trader has, this system can be used to realize impressive profits.
Starting at the Beginning
The turtle system of trading all began with an experiment in the early 1980s. Richard Dennis had become wildly successful in placing profitable trades. He began trading with just under $5,000, but came out with more than $100 million. The whole world took notice of his overwhelming profits. Dennis was convinced that he could teach anyone how to successfully trade in the futures market. His partner, William Eckhardt, didn’t agree with him. He was sure that Dennis had a natural talent for trading. To settle the discussion, they agreed to try out the techniques Dennis used on a group of carefully selected traders. After choosing 14 participants, he spent two weeks training them in the process that they could use over and over to make profitable deals. His students, or “turtles” as he called them, did learn from him and were able to repeat his successes. At the end of the two weeks, it was clear that beginners could learn how to trade successfully using the concepts Dennis taught them.
Rules of the Trade
There are some basic guidelines that turtle traders adhere to. But the basic concepts are based on some simple principles:
- Do not pay attention to all the quotes available in the market.
- If a trader has $10,000 to risk, not more than $2,500 should be risked on each trade.
- At the beginning of the deal, the trader should know at what point to liquidate in case of a loss.
Pinpointing Potential Trades
Turtle trading begins with understanding the strategy of following trends. The logic behind the trade is to buy futures that are breaking out. Choose those that are on the upside of the trading ranges. Then pinpoint the sell point, which should be on the downside of breakouts. Although Dennis kept the specific parameters to himself for years, novice traders could learn the basic rules and make money.
Choosing Turtle Trading Strategies
While turtle trading only involves understanding a set of specific trading rules, it cannot be 100% foolproof. As with any other trading system, drawdowns are apt to occur. This is especially true with rules that follow trends, since trends can suddenly change direction without prior signs. However, when sticking with a specific rule set that has been created with proven criteria, new traders as well as seasoned ones can realize fantastic returns.